Superannuation Update

In more welcome news, the annual superannuation contribution caps are scheduled to increase from 1 July 2026. So let’s look at this first.

New Superannuation Contribution Caps

From 1 July 2026, the annual superannuation contribution caps will be:

• Concessional contributions: $32,500 (up from $30,000)
• Non-concessional contributions: $130,000 (up from $120,000)

It is important to note that your non-concessional contributions cap is reduced to nil if your total superannuation balance (TSB) is $2M (increasing to $2.1M from 1 July 2026) or higher. There are also age restrictions on making superannuation contributions.

Individuals with lower balances may be eligible to use a bring forward arrangement, and make a non-concessional contribution of up to $390,000, subject to additional conditions. Further, unused concessional cap amounts from prior years can be carried forward by individuals with lower balances, again subject to additional conditions.

Understanding the New Division 296 Tax on Superannuation

The Bill containing the Labour Government’s Division 296 tax bill has now passed both Houses of Parliament, and is now law. This new tax will apply from the 2027 financial year onwards, and is likely to impact anyone with a total superannuation balance (TSB) above $3 million.

In summary:

• Earnings on the portion of your TSB below $3 million will continue to be taxed at existing rates (up to 15% in accumulation phase, 0% in retirement phase).
• Earnings on the portion of your TSB above $3 million will be subject to an extra 15%, typically bringing the effective tax rate on that portion to up to 30%.
• Earnings on the portion of your TSB above $10 million will be subject to a further 10% (i.e. 25% Division 296 tax), typically bringing the effective tax rate on that portion to up to 40%.

Worked Examples

Example 1 – Balance over $3M

TSB at 30 June 2027: $4 million
Superannuation earnings: $200,000
Portion above $3M threshold: 25%

Division 296 Tax Payable = $200,000 * 25% * 15% = $7,500

Example 2 – Balance over $10M
TSB at 30 June 2027: $12 million
Superannuation earnings: $600,000

Portion above $3M threshold: 75%
Portion above $10M threshold: 16.67%

Division 296 Tax Payable = ($600,000 * 75% * 15%) + ($600,000 * 16.67% * 10%) = $77,502.

Paying Division 296 Tax

You can choose to pay this tax personally, or elect for your super fund to pay this on your behalf.

Superannuation Earnings

Superannuation Earnings for the purpose of calculating Division 296 tax includes all investment income (dividends, distributions, rent, interest, etc) and net realised capital gains. It does not include contributions or unrealised gains.

Unrealised Capital Gains on Assets Held at 1 July 2026

If you have a Self-Managed Superannuation fund (SMSF) that holds assets with unrealised capital gains, you can elect to reset the cost base of these assets for Division 296 tax purposes. This means you will only pay Division 296 tax on any increase in value from 1 July 2026, when the asset is sold.

It is important to note that you cannot elect to reset the cost base for specific assets only, so the election will be an ‘all or nothing’ decision.

Final Comments

The imposition of Division 296 tax is a significant change to way superannuation is taxed in Australia, and there is considerable complexity in how the new rules will work, and will be administered. Division 296 tax will first be applied based on your total superannuation balance as at 30 June 2027, and the amount payable will depend on your superannuation earnings for the 2027 financial year. If you have any questions or concerns about this new tax, we would encourage you to contact our office. We are here to help.